Even as median Irvine home prices hit the $715,000 mark in May 2018, prospective buyers were busy placing multiple bids on Irvine townhomes, single-family residences, and condos. There is no question about Irvine being an ideal real estate market for investors and a great place to live for families interested in quality of life. However, homebuyers should not rush to the closing table just because they get the “fear of missing out” (FOMO) feeling.
The FOMO factor tends to be priced into most real estate markets, but this should not preclude home affordability calculations. Even when mortgage lenders make it easy to borrow substantial amounts of money to help you buy a home, you should not fall prey to unrealistic expectations. The question of how much you should borrow to purchase a home is a matter of how much home you can actually afford.
Avoiding the Ownership Trap
The issue with borrowing too much in an Irvine, CA, real estate acquisition is that this financial decision has a great potential to interfere with your lifestyle and other goals. It is easy to become trapped in a home you can barely afford. You need to think about scenarios in which your income stops or is drastically reduced, and you also have to think about your ability to recover from a job loss.
The 80/20 Rule May Not Apply to You
Mortgage brokers will tell you that a 20 percent down payment and a good credit score will get you approved for a conventional home loan. This may be true from an underwriting point of view, but it may not necessarily put you in a comfortable financial position. The 80 percent loan-to-value (LTV) ratio is in the best interest of the bank, but it may not work out for you if the monthly payments are going to crush you.
The True Cost of Owning a Home
Instead of looking at the LTV ratio, ask your mortgage broker about completing a home affordability worksheet, which takes into consideration your mortgage payments, insurance, association fees, taxes, utilities, maintenance expenses, and outstanding debts. These factors determine the true cost of home ownership, and they should be compared against your net household income. Your affordability ratio should be around 36 percent.
Making Long-Term Financial Plans
You should look ahead five to ten years and think about your financial goals before signing the mortgage documents on a house for sale in Irvine, CA. A quick rule of thumb in this regard is to borrow more if you plan on selling or moving before spending five years in the property. However, this could also be a gamble if economic forecasts are uncertain. If you borrow less and intend to raise your family in Irvine, you will find it easier to handle your monthly payments and set financial goals.
Make sure to get preapproved and determine how much you can actually afford when beginning your house hunt. Your next important step is to find a trusted local real estate agent who can help you find the right home within your budget. Get in touch with Irvine Residential Living today at 714-454-6304 to see the latest listings on the market.